Driving the Future: India’s Rise as an Automotive Growth Hub

Over the last five years, the world has faced multiple disruptive events:

• COVID-19 in 2020 and 2021

• The Russia–Ukraine war in 2022

• The crisis in Israel and the Middle East

• And the reelection of Donald Trump in the United States

Each of these has shaped global growth patterns and will likely influence how the world economy functions going forward. In contrast, India has managed to sustain high single-digit.

GDP growth rates during these turbulent years. According to the International Monetary Fund, India’s GDP at current prices is projected to reach 4.2 trillion US dollars by the end of 2025 — doubling within a decade from 2.1 trillion US dollars in 2015.

Automotive Industry: A Key Growth Driver

Among the many industries fueling India’s economy, the automotive sector stands out as one of the most significant, with a market size of roughly 240 billion US dollars. It contributes nearly one sixth of the country’s total GST collection.

With the middle class expected to expand to nearly 715 million people by 2030, roughly equal to the population of the European Union, and a growing appetite for premium products, international players such as Toyota, Hyundai, and Kia have established themselves successfully. German luxury brands including Mercedes, BMW, and Audi also continue to thrive, backed by the expanding business elite.

A Robust Automotive Ecosystem

India’s automotive ecosystem is extensive and well-structured. The Ministry of Heavy Industries’ Annual Report (2024–2025) estimates the sector employs about 30 million people — 4.2 million directly and 26.5 million indirectly.

Exports are another strength. In the last fiscal year, vehicles and components worth 35 billion US dollars were exported. Passenger vehicle exports in FY 2024–2025 reached an all-time high of 770,000 units, marking a 14.6 percent increase from the prior year.

India is now:

• The world leader in three-wheeler production

• among the top two producers of two-wheelers

• in the top four globally for passenger vehicle output

• and in the top five for commercial vehicle manufacturing

Expansion Across the Value Chain

This growth benefits stakeholders across the spectrum, from major OEMs like Tata Motors, Mahindra, Maruti Suzuki, and Hyundai to mobility platforms such as Uber, Ola, Rapido, and BluSmart. Many segments report annual growth between 10 and 15 percent.

Passenger vehicle sales hit 4.3 million units in FY 2024–2025, a 2 percent rise compared to the year before. Utility vehicles drove this trend, now accounting for 65 percent of total sales, up from 60 percent.

This widespread growth creates opportunities for manufacturers, service providers, and new entrants alike.

Growth Enablers

Rising disposable incomes, especially in Tier I and Tier II cities, continue to fuel demand. The IMF projects India’s nominal GDP per capita will approach 3,000 US dollars in 2025, nearly twice the 2015 level. This rise in purchasing power is expected to accelerate demand for cars and premium two-wheelers.

Car ownership remains a status symbol in India. With only around 30 cars per 1,000 people, compared to over 800 per 1,000 in the US and more than 200 per 1,000 in China, the room for expansion is enormous.

Price sensitivity, however, remains a hallmark of the Indian consumer. OEMs like Maruti Suzuki, Hyundai, Tata Motors, and Mahindra cater to first-time buyers with models priced from around 5,000 euros.

Reflecting these dynamics, two-wheeler sales rebounded to 19.6 million units in FY 2024–2025, an increase of 9.1 percent. At the same time, electric two-wheelers crossed the 6 percent threshold of total sales, highlighting a growing shift toward sustainable mobility

Electric Mobility and Policy Support

The Indian government has actively encouraged the transition from internal combustion engines to electric vehicles, aligning with the younger generation’s focus on sustainability and cost efficiency.

Central and state-level policies support EV adoption through:

• FAME II subsidies

• production-linked incentive programs

• tax incentives

Rising fuel costs and environmental concerns further accelerate this momentum. Companies like Tata Motors, Ola Electric, and Mahindra are responding with affordable EV models.

New Mobility and Changing Preferences

Urban India is increasingly embracing alternatives to traditional ownership, such as ride-hailing, car subscriptions, and leasing. This trend allows automakers to expand their reach by partnering with mobility providers and diversifying beyond direct sales.

Challenges Ahead

Despite vast opportunities, India remains a demanding market. Ford Motors, for instance, exited in 2022 after two decades, largely due to market misjudgments. A uniform global approach simply does not work here.

Import tariffs, which can reach up to 100 percent, also present barriers. While many US firms have succeeded in India, the auto industry has proven especially difficult for them.

India’s export achievements are also under pressure. In 2024, the US accounted for around 30 percent of India’s 2.2 billion US dollar auto component exports. These could face risks from new reciprocal tariffs (up to 26 percent) under President Trump’s administration.

Furthermore, the industry depends heavily on global supply chains for semiconductors, electronic chips, and raw materials. Any disruption, such as the recent chip shortage, can significantly raise costs and delay production.

Opportunities Ahead

Nevertheless, growth opportunities remain abundant. From rising demand for electric and larger vehicles to increased component manufacturing, the potential is vast.

Technology firms offering software, infotainment, autonomous driving solutions, and telematics can also expect growing demand. The Ministry of Heavy Industries’ Automotive Mission Plan 2024–2047 defines clear stages of sectoral development, emphasizing EVs, hydrogen fuel, and smart mobility.

Beyond manufacturers, infrastructure developers, dealerships, banks, insurers, service companies, and R&D centers will all benefit from India’s expanding automotive sector.

Reach out to us to discuss how your business can seize its share of this opportunity in India.

Sources

GDP growth: https://economictimes.indiatimes.com/news/economy/indicators/indias-gdp-doubled-to-4-2-trillion-over-last-ten-years-imf/articleshow/119516457.cms

Indian automotive industry size US$ 238b: https://www.ibef.org/news/auto-industry-hits-us-238-32-billion-rs-20-trillion-in-fy24-contributes-14-15-to-total-gst-siam

Middle class population to be over 700m by 2030: https://www.ibef.org/news/indian-middle-class-will-nearly-double-to-61-by-2046-47-price-report

Employment in Indian automotive: https://ddnews.gov.in/en/from-2-million-to-28-million-how-indias-automobile-sector-transformed-in-three-decades/

Income level: https://www.statisticstimes.com/economy/country/india-gdp-per-capita.php

Passenger vehicle sales record: https://economictimes.indiatimes.com/industry/auto/auto-news/indias-passenger-vehicle-sales-hit-record-high-at-43-lakh-units-in-fy25-utility-vehicles-driver-of-growth-siam/articleshow/120301623.cms